The New Open Source Business Model Still Relies on Closed Source

Dual-license, Open Core

March 19, 2010

Over the last couple of years a number of different open source business strategies have evolved. According to the 451 Group, it's an evolution that includes the broader adoption and usage of open source overall by both open source and proprietary software vendors.

Back in 2008, the 451 Group put out a landmark report on open source business strategies. According to 451 Group analyst Matt Aslett there has been some change since then. Among the changes is a decline in the dual-licensing strategy that was once a popular business strategy for vendors aiming to profit from their open source technologies.

"I didn't expect it to be significant but when I looked at the vendors we analyzed in 2008 16 percent were using dual-licensing strategy," Aslett, analyst at the 451 Group told InternetNews.com. "In 2010, it's just 5 percent of the same 114 vendors -- that really bears out the fact that there has been a shift away from dual licensing ."

Dual-licensing is an approach whereby the vendor provides their software under both an open source and a commercial license. It's an approach that was popularized by open source database vendor MySQL. Instead of going the dual-licensing route as a business strategy, other models and approaches have emerged to take its place.

The Open Core model

"We've seen a few of the dual-licensed vendors that have dropped the commercial version and have gone the pure open source approach and just relying on support and services revenue," Aslett said. "We've seen a lot more move to the Open Core model. We saw that grow from 24 percent of vendors in 2008 to 30 percent today."

Aslett defines the Open Core as one where there is a core open source project for which the vendor supplies proprietary extensions. While the dual-licensing is different from open core, there is at least one key similarity.

"At the end of the day both open core and dual-licensing involve commercially licensed proprietary software," Aslett said. "Both strategies enable a vendor to have some control over the commercial aspects of the business strategy and the enterprise version."

Overall, Aslett noted that much has changed in open source usage since his 2008 report such that it is now more difficult to actually isolate and identify all of the vendors that have an open source business strategy. More vendors than ever are now using open source at different points in their process and applications and usage is not limited to pure-play open source vendors.

"If you look know and see how a company like IBM, Oracle or SAP or Microsoft are making money from open source it's not in the way that we've traditionally seen open source specialists make money," Aslett said. "It's though complementary products and services. So those are very different strategies that don't necessarily focus on commercializing the open source software directly."

For those vendors that are open source specialists, Aslett sees the big challenge as figuring out how to convert community users into paying users. He noted that it's a balancing act for many vendors as not every user wants or needs to be sold on additional services.

"I think that a lot of vendors have gotten better at realizing to not try and convert all community users as it actually could have a detrimental effect on the image of the company," Aslett said. "So they've been a lot more clever about the techniques they use to make sure they capture users when they're at the point that they want to engage in a subscription or get a commercially licensed extension."